Constellation Software Inc. Announces Results for the Fourth Quarter and Year Ended December 31, 2015 and Declares Quarterly Dividend

Transcription

1 Constellation Software Inc. Announces Results for the Fourth Quarter and Year Ended December 31, 2015 and Declares Quarterly Dividend TORONTO, ONTARIO (February 17, 2016) -- Constellation Software Inc. (TSX:CSU) ( Constellation or the Company ) today announced its financial results for the fourth quarter and year ended December 31, 2015 and declared a $1.00 per share dividend payable on April 5, 2016 to all common shareholders of record at close of business on March 18, This dividend has been designated as an eligible dividend for the purposes of the Income Tax Act (Canada). Please note that all dollar amounts referred to in this press release are in U.S. Dollars unless otherwise stated. The following press release should be read in conjunction with the Company s annual Consolidated Financial Statements, prepared in accordance with International Financial Reporting Standards ( IFRS ) and our annual Management s Discussion and Analysis for the year ended December 31, 2015, which can be found on SEDAR at and on the Company s website Additional information about the Company is also available on SEDAR at Q Headlines: Revenue grew 16% (negative 1% organic growth) to $512 million compared to $440 million in Q Changes in foreign exchange rates resulted in an approximate 5% reduction in organic growth. Adjusted EBITA increased $29 million or 28% to $133 million as compared to $104 million in Q Adjusted EBITA margin increased 2% from 24% in Q to 26% in Q Changes in foreign exchange rates resulted in less than a 1% reduction in Adjusted EBITA margin. Adjusted net income increased 36% to $118 million ($5.55 on a diluted per share basis) from $87 million ($4.09 on a diluted per share basis) in Q Net income increased 68% to $66 million ($3.11 on a diluted per share basis) from $39 million ($1.86 on a diluted per share basis) in Q Nine acquisitions were completed for aggregate cash consideration of $25 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $7 million. Cash flows from operations were $114 million, an increase of 18%, or $17 million, compared to $97 million in Q Headlines: Revenue grew 10% (negative 3% organic growth) to $1,838 million compared to $1,669 million in Changes in foreign exchange rates resulted in an approximate 6% reduction in organic growth. Adjusted EBITA increased $98 million or 28% to $446 million as compared to $348 million in Adjusted EBITA margin increased 3% from 21% in 2014 to 24% in Changes in foreign exchange rates resulted in less than a 1% reduction in Adjusted EBITA margin. Adjusted net income increased 35% to $371 million ($17.51 on a diluted per share basis) from $274 million ($12.94 on a diluted per share basis) in Net income increased 72% to $177 million ($8.36 on a diluted per share basis) from $103 million ($4.87 on a diluted per share basis) in Thirty-one acquisitions were completed for aggregate cash consideration of $223 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $25 million. Cash flows from operations were $396 million, an increase of 16%, or $55 million, compared to $341 million in Fourth quarter 2015 revenue was $512 million, an increase of 16%, or $72 million, compared to $440 million for the comparable period in For the 2015 fiscal year total revenues were $1,838 million, an increase of 10%, or $169 million, compared to $1,669 million for the comparable period in The increase for both the three and twelve month periods compared to the same periods in the prior year is attributable to growth from acquisitions as the Company experienced negative organic growth of 1% and 3% respectively. For the three and twelve months ended December 31, 2015, the appreciation of the US dollar against most other major currencies in which the 1

2 Company transacts business resulted in an approximate 5% and 6% respective reduction in the Company s organic growth rate compared to the comparable periods of The negative impact of foreign exchange on the Company s Q4 organic growth rate was partially offset by an increase in hardware sales recorded in our public sector relating to various large projects in our transit vertical. Hardware revenue is primarily recognized on delivery and as such can result in temporary spikes in revenue. Organic growth in Q4 was positive 1% after adjusting for both factors. Adjusted EBITA for the fourth quarter of 2015 was $133 million, a 28% increase compared to the prior year s fourth quarter Adjusted EBITA of $104 million. Fourth quarter 2015 Adjusted EBITA per share on a diluted basis increased 28% to $6.27, compared to $4.90 for the same period in the prior year. Adjusted EBITA for the 2015 fiscal year was $446 million, a 28% increase over the 2014 fiscal year Adjusted EBITA of $348 million. Adjusted EBITA per share on a diluted basis for the 2015 fiscal year increased 28% to $21.02, compared to $16.43 for the 2014 fiscal year. Adjusted net income for the fourth quarter of 2015 was $118 million, compared to the prior year s fourth quarter Adjusted net income of $87 million, a 36% increase. Fourth quarter 2015 Adjusted net income per share on a diluted basis increased 36% to $5.55 compared to $4.09 for the prior year s fourth quarter. Adjusted net income for the 2015 fiscal year was $371 million, an increase of 35% over the 2014 fiscal year Adjusted net income of $274 million. Adjusted net income per share on a diluted basis for the 2015 fiscal year increased 35% to $17.51, compared to $12.94 for the 2014 fiscal year. Net income for the fourth quarter 2015 was $66 million compared to the prior year s fourth quarter net income of $39 million. Net income per share on a diluted per share basis for the fourth quarter of 2015 increased 68% to $3.11, compared to $1.86 for the same period of Net income for the 2015 fiscal year was $177 million, an increase of 72% over net income of $103 million for the 2014 fiscal year. Net income per share on a diluted basis for the 2015 fiscal year increased 72% to $8.36, compared to $4.87 for the 2014 fiscal year. Cash flows from operations for the fourth quarter of 2015 were $114 million, an increase of 18%, or $17 million, compared to $97 million for the comparable period in For the 2015 fiscal year cash flows from operations were $396 million, an increase of 16%, or $55 million, compared to $341 million for the 2014 fiscal year. The following table displays our revenue by reportable segment and the percentage change for the quarter and year ended December 31, 2015 compared to the same periods in 2014: Three months ended Period-Over- Fiscal year ended Period-Over- December 31, Period Change December 31, Period Change $ % $ % ($M, except percentages) ($M, except percentages) Public Sector Licenses (0.1) -1% % Professional services (4.3) -5% (16.4) -5% Hardware and other % % Maintenance and other recurring % % % 1, , % Private Sector Licenses % % Professional services % % Hardware and other (0.1) -2% % Maintenance and other recurring % % % % 2

3 Public Sector For the quarter ended December 31, 2015, total revenue in the public sector reportable segment increased by 14%, or $43 million to $348 million, compared to $305 million for the quarter ended December 31, For the fiscal year ended December 31, 2015, total revenue increased by 8%, or $92 million to $1,264 million, compared to $1,172 million for the comparable period in Total revenue growth from acquired businesses contributed approximately $44 million to our Q revenues and $134 million to our fiscal year ended December 31, 2015 revenues compared to the same periods in 2015, as we completed 27 acquisitions since the beginning of Organic revenue growth was 0% in Q and negative 3% for the year ended December 31, 2015 compared to the same periods in For the three and twelve months ended December 31, 2015 the appreciation of the US dollar against most other major currencies in which the Company transacts business resulted in approximate 5% and 6% respective reductions in the public sector revenue organic growth rates compared to the comparable periods of The negative impact of foreign exchange on the public sector Q4 organic growth rate was offset by an increase in hardware sales relating to various large projects in our transit vertical. Hardware revenue is primarily recognized on delivery and as such can result in temporary spikes in revenue. Organic growth for the public sector in Q4 was 0% after adjusting for both factors. Private Sector For the quarter ended December 31, 2015, total revenue in the private sector reportable segment increased 22%, or $29 million to $164 million, compared to $135 million for the quarter ended December 31, For the fiscal year ended December 31, 2015, total revenue increased by 15%, or $77 million to $575 million, compared to $498 million for the comparable period in Total revenue growth from acquired businesses contributed approximately $32 million to our Q revenues and $88 million to our fiscal year ended December 31, 2015 revenues compared to the same periods in 2014, as we completed 27 acquisitions since the beginning of Organic revenue growth was negative 2% for both the three and twelve months ended December 31, 2015 compared to the same periods in For the three and twelve months ended December 31, 2015, the appreciation of the US dollar against most other major currencies in which the Company transacts business resulted in approximate 4% and 5% respective reductions in the private sector revenue organic growth rates compared to the comparable periods of Conference Call and Webcast Management will host a conference call at 8:00 a.m. (ET) on Friday, February 19, 2016 to answer questions regarding the results. The teleconference numbers are or The call will also be webcast live and archived on Constellation s website at A replay of the conference call will be available as of 12:30 a.m. ET the same day until 11:59 p.m. ET on March 4, To access the replay, please dial or followed by the passcode Forward Looking Statements Certain statements herein may be forward looking statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Constellation or the industry to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly from the results discussed in the forward looking statements. These forward looking statements reflect current assumptions and expectations regarding future events and operating performance and are made as of the date hereof and Constellation assumes no obligation, except as required by law, to update any forward looking statements to reflect new events or circumstances. 3

4 Non-IFRS Measures The term Adjusted EBITA refers to net income before adjusting for finance and other income, bargain purchase gain, finance costs, income taxes, share in net income or loss of equity investees, impairment of nonfinancial assets, amortization, TSS membership liability revaluation charge, and foreign exchange gain or loss. The Company believes that Adjusted EBITA is useful supplemental information as it provides an indication of the results generated by the Company s main business activities prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration intangible asset amortization and the other items listed above. Adjusted EBITA margin refers to the percentage that Adjusted EBITA for any period represents as a portion of total revenue for that period. Previously the Company has reported Adjusted EBITDA in certain financial disclosures, but has determined that Adjusted EBITA is a more meaningful measure going forward. Adjusted EBITDA refers to Adjusted EBITA as defined above then further excludes depreciation. The Company uses depreciation as a proxy for the cash flows used to purchase property and equipment required to support the Company s main business activities. As such, the Company believes Adjusted EBITA is a more useful measure then Adjusted EBITDA. Adjusted net income means net income adjusted for non-cash expenses (income) such as amortization of intangible assets, deferred income taxes, the TSS membership liability revaluation charge, and certain other expenses (income), and excludes the portion of the adjusted net income of Total Specific Solutions (TSS) B.V. ( TSS ) attributable to the minority owners of TSS. The Company believes that Adjusted net income is useful supplemental information as it provides an indication of the results generated by the Company s main business activities prior to taking into consideration amortization of intangible assets, deferred income taxes, the TSS membership liability revaluation charge, and certain other non-cash expenses (income) incurred or recognized by the Company from time to time, and adjusts for the portion of TSS Adjusted net income not attributable to shareholders of Constellation. Adjusted net income margin refers to the percentage that Adjusted net income for any period represents as a portion of total revenue for that period. Adjusted EBITA and Adjusted net income are not recognized measures under IFRS and, accordingly, readers are cautioned that Adjusted EBITA and Adjusted net income should not be construed as alternatives to net income determined in accordance with IFRS. The Company s method of calculating Adjusted EBITA and Adjusted net income may differ from other issuers and, accordingly, Adjusted EBITA and Adjusted net income may not be comparable to similar measures presented by other issuers. Adjusted EBITA includes 100% of the Adjusted EBITA of TSS. 4

5 The following table reconciles Adjusted EBITA to net income: Three months ended December 31, Fiscal year ended December 31, ($M, except percentages) ($M, except percentages) Total revenue , ,669.3 Net income Adjusted for: Income tax expense (recovery) Foreign exchange (gain) loss (7.3) 1.8 (15.7) 10.5 TSS membership liability revaluation charge Share in net (income) loss of equity investees (0.2) (0.1) (1.1) (0.8) Finance and other income (1.5) (1.4) (4.8) (4.1) Bargain purchase gain - (2.2) - (2.2) Finance costs Amortization of intangible assets Adjusted EBITA Adjusted EBITA margin 26% 24% 24% 21% The following table reconciles Adjusted net income to net income: Three months ended Fiscal year ended December 31, December 31, ($M, except percentages) ($M, except percentages) Total revenue , ,669.3 Net income Adjusted for: Amortization of intangible assets TSS membership liability revaluation charge Bargain purchase gain - (2.2) - (2.2) Less non-controlling interest in the Adjusted net income of TSS (3.1) - (12.6) - Deferred income tax expense (recovery) (0.1) Adjusted net income Adjusted net income margin 23% 20% 20% 16% About Constellation Software Inc. Constellation's common shares are listed on the Toronto Stock Exchange under the symbol "CSU". Constellation acquires, manages and builds vertical market software businesses. 5

6 For further information: Jamal Baksh Chief Financial Officer (416) SOURCE: CONSTELLATION SOFTWARE INC. 6

7 CONSTELLATION SOFTWARE INC. Consolidated Statements of Financial Position (In thousands of U.S. dollars) December 31, 2015 December 31, 2014 Assets Current assets: Cash $ 178,471 $ 70,679 Accounts receivable 226, ,056 Work in progress 59,483 51,483 Inventories 24,332 25,246 Other assets 67,246 63, , ,758 Non-current assets: Property and equipment 42,072 37,227 Deferred income taxes 56,650 60,763 Other assets 32,186 36,942 Intangible assets 952, ,435 1,083,017 1,022,367 Total assets $ 1,639,320 $ 1,433,125 Liabilities and Shareholders' Equity Current liabilities: Bank indebtedness $ $ 63,894 CNH Facility 8,725 2,432 TSS membership liability 19,602 17,345 Accounts payable and accrued liabilities 274, ,996 Dividends payable 21,326 21,192 Deferred revenue 421, ,336 Provisions 8,420 13,399 Acquisition holdback payments 9,116 22,665 Income taxes payable 6,561 25, , ,847 Non-current liabilities: CNH Facility 126, ,654 TSS membership liability 34,482 30,515 Debentures 220,043 78,642 Deferred income taxes 109, ,275 Acquisition holdback payments 6,987 3,603 Other liabilities 34,566 44, , ,447 Total liabilities 1,302,038 1,173,294 Shareholders' equity: Capital stock 99,283 99,283 Accumulated other comprehensive income (loss) (34,319) (19,290) Retained earnings 272, , , ,831 Total liabilities and shareholders' equity $ 1,639,320 $ 1,433,125 7

8 CONSTELLATION SOFTWARE INC. Consolidated Statements of Income (In thousands of U.S. dollars, except per share amounts) Years ended December 31, Revenue License $ 131,022 $ 118,868 Professional services 384, ,128 Hardware and other 152, ,340 Maintenance and other recurring 1,169,795 1,015,008 1,838,309 1,669,344 Expenses Staff 912, ,587 Hardware 90,308 79,532 Third party license, maintenance and professional services 163, ,191 Occupancy 43,218 41,043 Travel 54,643 50,144 Telecommunications 17,909 16,356 Supplies 10,951 9,849 Software and equipment 30,954 26,978 Professional fees 22,619 22,844 Other, net 29,042 24,278 Depreciation 17,028 16,462 Amortization of intangible assets 180, ,186 1,573,241 1,494,450 Foreign exchange loss (gain) (15,743) 10,528 TSS membership liability revaluation charge 22,244 - Share in net (income) loss of equity investee (1,070) (830) Finance and other income (4,772) (4,109) Bargain purchase gain - (2,246) Finance costs 20,110 16,680 20,769 20,023 Income before income taxes 244, ,871 Current income tax expense (recovery) 63,450 51,542 Deferred income tax expense (recovery) 3, Income tax expense (recovery) 67,051 51,773 Net income 177, ,098 Earnings per share Basic and diluted $ 8.36 $

9 CONSTELLATION SOFTWARE INC. Consolidated Statements of Comprehensive Income (In thousands of U.S. dollars, except per share amounts) Years ended December 31, Net income $ 177,248 $ 103,098 Items that are or may be reclassified subsequently to net income: Net change in fair value of available-for-sale financial asset during the period - 93 Net change in fair value of derivatives designated as hedges during the period (423) (546) Amounts reclassified to profit during the period related to realized gains on available-for-sale financial asset - (574) Foreign currency translation differences from foreign operations (14,734) (18,871) Current income tax recovery (expense) - 35 Deferred income tax recovery (expense) Other comprehensive (loss) income for the period, net of income tax (15,029) (19,739) Total comprehensive income for the period $ 162,219 $ 83,359 9

10 CONSTELLATION SOFTWARE INC. Consolidated Statements of Changes in Equity (In thousands of U.S. dollars) Year ended December 31, 2015 Capital stock Accumulated other comprehensive income/(loss) Total accumulated other comprehensive income/(loss) Retained earnings Total Cumulative translation account Amounts related to gains/(losses) on derivatives designed as hedges Amounts related to gains/losses on availablefor-sale financial assets Balance at January 1, 2015 $ 99,283 $ (18,880) $ (410) $ - $ (19,290) $ 179,838 $ 259,831 Total comprehensive income for the period Net income , ,248 Other comprehensive income (loss) Net change in fair value of available-for-sale financial asset during the period Net change in fair value of derivatives designated as hedges during the period - - (423) - (423) - (423) Amounts reclassified to profit during the period related to realized gains on available-for-sale financial assets Foreign currency translation differences from foreign operations - (14,734) - - (14,734) - (14,734) Current tax recovery (expense) Deferred tax recovery (expense) Total other comprehensive income (loss) for the period - (14,734) (295) - (15,029) - (15,029) Total comprehensive income (loss) for the period - (14,734) (295) - (15,029) 177, ,219 Transactions with owners, recorded directly in equity Dividends to shareholders of the Company (84,768) (84,768) Balance at December 31, 2015 $ 99,283 $ (33,614) $ (705) $ - $ (34,319) $ 272,318 $ 337,282 10

11 CONSTELLATION SOFTWARE INC. Consolidated Statements of Changes in Equity (In thousands of U.S. dollars) Year ended December 31, 2014 Capital stock Accumulated other comprehensive income/(loss) Total accumulated other comprehensive income/(loss) Retained earnings Total Cumulative translation account Amounts related to gains/(losses) on derivatives designed as hedges Amounts related to gains/losses on availablefor-sale financial assets Balance at January 1, 2014 $ 99,283 $ (32) $ - $ 481 $ 449 $ 166,267 $ 265,999 Total comprehensive income for the period Net income , ,098 Other comprehensive income (loss) Net change in fair value of available-for-sale financial assets during the period Net change in fair value of derivatives designated as hedges during the year - - (546) - (546) (546) Amounts reclassified to profit during the period related to realized gains on available-for-sale financial assets (574) (574) - (574) Foreign currency translation differences from foreign operations - (18,871) - - (18,871) - (18,871) Current tax recovery (expense) Deferred tax recovery (expense) - (12) Total other comprehensive income for the period - (18,848) (410) (481) (19,739) - (19,739) Total comprehensive income for the period - (18,848) (410) (481) (19,739) 103,098 83,359 Transactions with owners, recorded directly in equity Dividends to shareholders of the Company (84,768) (84,768) Fair value of rights offered to shareholders of the Company (4,759) (4,759) Balance at December 31, 2014 $ 99,283 $ (18,880) $ (410) $ - $ (19,290) $ 179,838 $ 259,831 11

12 CONSTELLATION SOFTWARE INC. Consolidated Statements of Cash Flows (In thousands of U.S. dollars) Year ended December 31, Cash flows from operating activities: Net income $ 177,248 $ 103,098 Adjustments for: Depreciation 17,028 16,462 Amortization of intangible assets 180, ,186 TSS membership liability revaluation charge 22,244 - Share in net (income) loss of equity investee (1,070) (830) Finance and other income (4,772) (4,109) Finance costs 20,110 16,680 Bargain purchase gain - (2,246) Income tax expense (recovery) 67,051 51,773 Foreign exchange loss (gain) (15,743) 10,528 Change in non-cash operating working capital exclusive of effects of business combinations 3,080 (1,713) Income taxes paid (69,701) (21,367) Net cash flows from operating activities 395, ,462 Cash flows from (used in) financing activities: Interest paid (17,533) (12,877) Increase (decrease) in revolving credit facility, net (64,500) (84,700) Proceeds from issuance of CNH facility - 177,000 Repayments of CNH facility and TSS Acquisition Facility (2,199) (325,813) Credit facility transaction costs - (7,166) Proceeds from issuance of debentures 159,709 81,233 Proceeds from issuance of TSS Membership Liability - 48,503 Distribution to TSS minority owners (10,879) - Dividends paid (84,768) (84,768) Net cash flows from (used in) in financing activities (20,170) (208,588) Cash flows from (used in) investing activities: Acquisition of businesses, net of cash acquired (210,299) (98,688) Post-acquisition settlement payments, net of receipts (38,473) (22,952) Proceeds from sale of available-for-sale equity securities Interest and dividends received Proceeds from sale of assets Property and equipment purchased (12,894) (13,868) Net cash flows from (used in) investing activities (261,096) (133,694) Effect of foreign currency on cash and cash equivalents (6,886) (6,468) Increase (decrease) in cash and cash equivalents 107,792 (7,288) Cash, beginning of period 70,679 77,967 Cash, end of period $ 178,471 $ 70,679 12